Bank Indonesia (BI) lowered the benchmark BI-Rate by 25 basis points to 5.75% today.
The 38 economists surveyed by Bloomberg News unanimously expected the central bank to leave policy unchanged at 6% for a fourth straight meeting.
The rupiah extended its depreciation to 0.4% after the decision, becoming the weakest performer among Asian currencies today, though Indonesian stocks gained as much as 1.4%.
The yield on five-year government bonds pared an earlier rise after the decision, which comes after the rupiah declined almost 2% against the greenback in the past month, despite repeated central bank intervention.
“We have changed our stance, which is to pro-stability and growth,” governor Perry Warjiyo said at a briefing in Jakarta today.
“And we have said that we continue to look at the room for interest rate cuts in line with global and national economic dynamics,” Warjiyo said.
In December, Warjiyo had reiterated that monetary policy would be focused on maintaining currency stability, citing uncertainty over incoming US President Donald Trump’s administration, the Federal Reserve (Fed)’s easing path, and geopolitical tensions.
“This decision is consistent with the persistence of low 2025 and 2026 inflation expectations within the target of 1.5%-3.5%, the maintenance of the rupiah exchange rate in line with fundamentals to control inflation within its target, and the need to contribute to economic growth,” Warjiyo said.
Today’s cut signals that Warjiyo and his board have shifted their focus on supporting growth, which President Prabowo Subianto aims to accelerate to 8%, well above the 5% average pace of the past decade.
The central bank lowered estimates for Indonesia’s gross domestic product growth in 2025 while slightly raising its projection for global expansion this year, according to Warjiyo’s remarks at the briefing.
Authorities expect the rupiah to remain stable in line with BI’s policies and amid inflation that’s seen staying within target.
“BI will keep coordinating with the government to spur economic activity, in line with the president’s priority programmes,” he added.
On New Year’s Eve, the government surprisingly scaled back its value-added tax rate hike this year while pushing through with a stimulus package, which includes fiscal measures to boost domestic demand.
But pressure on the rupiah led most economists to expect the central bank would hold, even though the nation’s inflation rate stood at the low end of BI’s 1.5%-3.5% target last year.
For now, BI may have to rely more on market intervention and on its high-yielding SRBI rupiah securities to attract foreign funds and stem rupiah volatility.
Foreign exchange reserves surged to a fresh record last month, while average yields on SRBI were above 7% at the latest auction.